ELLIOTT WAVE ANALYSIS - Latest Market Commentary
Stock Indices
Post Easter-holidays, the S&P has followed the Dow Jones (DJIA) in breaking above the secondary highs traded on April 10th that unequivocally confirms prices are heading for yet another higher high during the next few weeks. In recent updates, this scenario has described the S&P unfolding from its early February low as a five wave ending contracting-diagonal pattern with ultimate upside targets towards 1931.33. This upside target would translate into equivalent upside targets for the Dow Jones futures towards 16983. A casual look at the declining pattern from the early March high for the Russell 2000 and the Nasdaq 100 appears as a seven price-swing corrective sequence that translates into higher highs – but these can be constructed into five wave patterns that would restrict a current counter-trend upswing from the April low ending below the existing highs. One index that is confirming a directional change ###that has occurred already is the U.S. Biotechnology index. This ended a five wave upswing from the Aug.’11 low into last February’s high that has subsequently declined into five price swings into the April low of 2168.08. This limits the upside potential across the index board, even for the S&P and Dow. A counter-trend upswing is synchronising the current advance but we expect completion within the next 2-week period. A glance at the wider perspective confirms U.S. indices are approaching terminal upside levels that will ultimately change direction to the downside during the next couple of weeks, beginning a multi-month decline that ultimately trims levels by up to -14%. In Europe, we are now confirming the Eurostoxx 50 and Dax are set to trade into slightly higher highs prior to beginning a multi-month corrective decline. In Asia, the Hang Seng has resumed its overall counter-trend decline that began last December although the Nikkei 225 is expected to trade back inside the Feb.-March ’14 trading-range prior to turning lower. 24th April 2014
Currencies (FX)
The US$ index’s April low of 7933 marks the completion of a sharp 2nd wave counter-trend decline. It was followed by significant price rejection to the 7990 high which is interpreted as the 1st wave within a five wave expanding-impulse sequence. Added together, this amounts to a total of 1-2’s when counted from the Oct.’13 low of 7899. The implication is clear – the US$ is poised for dramatic upside acceleration that would corroborate the 8885+/- target area to be approached in the months ahead. Shorter-term, the rally into the 7990 low was followed by a decline to 7958 and a subsequent advance to 7998. The US$ however was unable to continue higher and instead fell back into the 7958-7990 range. This suggests that a short-term expanding flat is in progress as the last 2nd wave within the 1-2-1-2-1-2 sequence (from 7899). Idealised support measures to 7946, the fib. 76.4% retracement. Await a reversal from there to confirm the completion of the flat and trigger subsequent upside acceleration. The situation is similar for the Euro/US$: Since its ###decline from the March high of 1.3967, downside momentum is slowly adding up as it has unfolded into a 1-2-1 sequence so far. The current 2nd wave in progress from the mid-April low of 1.3791 is taking the shape of an expanding flat, too. Overhead resistance measures to 1.3877, the fib. 76.4% retracement – a reversal from there should trigger downside acceleration as the 3rd of 3rd which will reinforce ultimate targets to 1.2528 in the months ahead. Despite its extended trading-range evident from the February low of 10075, the US$/Yen can begin its downside acceleration anytime. This is because the 10548 high completed wave ‘B’ of a larger expanding flat sequence, and the subsequent price declines have initiated the finalising ‘C’ wave downswing that is expected to pull the currency pair lower in the months ahead, with ultimate targets remaining unchanged towards 9242-12. The February low of 10075 marks the completion of the 1st wave within wave ‘C’ and the subsequent correction which unfolded into a single zig zag to 10412 is labelled as the 2nd wave. Now, another 1-2 sequence has formed from the 10412 high which sets the stage for a 3rd of 3rd downside acceleration. Meanwhile, the AUD/US$ achieved original upside objectives to 0.9445+/- with a traded high of 0.9463 and subsequently staged a reversal signature. This confirms the completion of a larger 4th wave counter-trend zig zag rally that dates back to the Jan.’14 low of 0.8658 and validates the resumption of the larger downswing with minor wave v. five declines to continue below the January low – idealised objectives measure to 0.8473+/-. 24th April 2014
Bonds (Interest Rates)
Last week confirmed the US30yr yield had completed a multi-month counter-trend expanding flat pattern from last September’s high into the April low at 3.431% as primary wave 4. By contrast, the US10yr yield has completed a contracting symmetrical-triangle pattern at 2.596% and Germany’s equivalent DE10yr yield as a double zig zag pattern to 1.463%. The synchronisation of these patterns indicates an imminent directional change to the upside to resume the established uptrend already in progress from the July ’12 lows. It is early days, with yield levels requiring more upside during the next week to isolate the recent lows to confirm a reversal signature – but the omens look good. What triggers such a directional change remains unknown although central bankers are still preoccupied with the risk of deflation and could start talking short-term rates higher during the next several weeks. The normalised positive correlation of long-dated yields versus stock markets also remains an important question so far unanswered. ###If upside projections for yields are realised during the next couple of months, does this diverge with a bearish outlook for U.S. stock markets? Divergences have occurred in the past and this could still become another exception to the rule. 24th April 2014
Commodities
Gold’s downswing from the March high of 1392.30 is expected to take the shape of a five wave expanding-impulse sequence. The early April low of 1277.30 marks the completion of the 1st wave within this pattern followed by the 2nd wave rally to 1331.21. The subsequent sell-off back to the April low has unfolded into three price swings where the first is much larger than the second. This suggests that instead of counting this decline as a single zig zag, it is much more likely that a smaller 1-2-1 sequence has occurred which puts the emphasis on possible downside risk as gold could begin to accelerate lower anytime. This, of course, would corroborate ultimate downside targets towards 1100.00+/- to be approached during the next months. In comparison, silver has been unusually strong during the last days as it held above its April low of 19.24. Moreover, the short-term situation is a bit ambiguous as silver could be involved in a double or single zig zag pattern when counted from the 22.19 high. As the finalising sequence within a larger ending expanding-diagonal, the decline from 22.19 has to unfold into a corrective structure – but whether this unfolds into three, seven or eleven waves, is not specified. Previous updates advocated a seven price swing sequence, where the first zig zag completed at 19.49 and was followed by wave ‘X’ rallies to 20.40. Thus, the current sell-off would be labelled as wave ‘A’ of the secondary zig zag with immediate downside potential to 18.70+/-. A new suggestion is to describe the decline from 22.19 unfolding into a three wave single zig zag pattern. This would, in the very short-term, allow for a counter-trend rally because the 19.24 low would be labelled as the completion of wave ‘A’ within the zig zag. Both counts however have the same bearish outlook for the next several weeks – ultimate downside remains towards 17.50+/-. Crude oil failed to break above the 105.22 level which would have clarified the current situation as it would have negated downside targets to 81.90 during the next months. Instead, oil declined by almost US$ 4 during the last week which keeps the expanding flat pattern scenario in play. This count depicts wave ‘C’ of the expanding flat in progress from 112.24 and projected to ultimate downside at 81.90. A break above 105.22 would otherwise change the expanding flat into a running type that already completed at the Jan.’14 low of 91.24. Subsequent advances should finalise towards 107.19+/- prior to a sell-off to 94.41+/- and subsequent upside acceleration. 24th April 2014
